U.S. FRANCHISE SYSTEMS, INC.
1996 Stock Option Plan
SECTION 1. Purpose. The purposes of this U.S. Franchise
Systems, Inc. 1996 Stock Option Plan are to promote the interests of U.S.
Franchise Systems, Inc. and its stockholders by (i) attracting and retaining
exceptional officers and other key employees of the Company and its
Subsidiaries, and consultants, advisors and others whom the Committee determines
possess skills that would be an asset to the Company or any of its Subsidiaries;
(ii) motivating such individuals by means of performance-related incentives to
achieve longer-range performance goals; and (iii) enabling such individuals to
participate in the long-term growth and financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following
terms shall have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or
indirectly, is controlled by or controls the Company and (ii) any entity in
which the Company has a significant equity interest, in either case as
determined by the Committee.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the occurrence of any of the
following: (i) the sale, lease, t"nsfer, conveyance or other disposition, in one
or a series of related transactions, of all or substantially all of the assets
of the Company to any "person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) other than the Permitted Holders,
(ii) any person or group, other than the Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the voting stock of
the Company, including by way of merger, consolidation or otherwise or (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board (together with any new directors whose
election by such Board or whose nomination for election by the stockholders of
the Company was approved by a vote of a majority of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
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"Committee" shall mean (i) a committee of the Board designated
by the Br"ard tn administer the Plan and comoosed of not less two directors,
each of whom is intended to be a "Non-Employee Director" (within the meaning of
Rule 16b-3) and an "outside director"(within the meaning of Code section 162(m))
to the extent Rule 16b-3 and Code section 162(m), respectively, are applicable
to the Company or (ii) if at any time such a committee has not been so
designated by the Board, the Board or any authorized committee thereof.
"Company" shall mean U.S. Franchise Systems, Inc., together
with any successor thereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean, (A) with respect to any
property other than Shares, the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the
Committee and (B) with respect to the Shares, as of any date, (i) the mean
between the high and low sales prices of the Shares as reported on the composite
tape for securities traded on the New York Stock Exchange for such date (or if
not then trading on the New York Stock Exchange, the mean between the high and
low sales price of the Shares on the stock exchange or over-the-counter market
on which the Shares are principally trading on such date), or if, there were no
sales on such date, on the closest preceding date on which there were sales of
Shares or (ii) in the event there shall be no public market for the Shares on
such date, the fair market value of the Shares as determined in good faith by
the Committee.
"Incentive Stock Option" shall mean a right to purchase Shares
from the Company that is granted under Section 6 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
"Non-Qualified Stock Option" shall mean a right to purchase
Shares from the Company that is granted under Section 6 of the Plan and that is
not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a
Non-Qualified Stock Option.
"Option Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing any Option, which may, but need not,
be executed or acknowledged by a Participant.
"Participant" shall mean any officer or other key employee
(including any prospective officer or key employee) of the Company or its
Subsidiaries, and any consultant,
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advisor or other person whom the Committee determines possesses skills that
would be an asset to the Company or any of its Subsidiaries, in each case who is
eligible for an Option under Section 5 and selected by the Committee to receive
an Option under the Plan.
"Permitted Holders" shall mean, as of the date of
determination, any and all of Neal K. Aronson and Michael A. Leven, their
spouses, their siblings and their siblings' spouses, their parents and
descendants of any of them (whether natural or adopted) (collectively, the
"Family Group") and (iii) any trust established and maintained primarily for the
benefit of any member of the Family Group and any entity controlled by any
member of the Family Group.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other entity.
"Plan" shall mean this U.S. Franchise Systems, Inc. 1996 Stock
Option Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and
interpreted by the SEC under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto and shall include the Staff thereof.
"Shares" shall mean shares of the Class A Common Stock of the
Company, $.01 par value, or such other securities of the Company (i) into which
such common shares shall be changed by reason of a recapitalization, merger,
consolidation, split-up, combination, exchange of shares or other similar
transaction or (ii) as may be determined by the Committee pursuant to Section
4(b).
"Subsidiary" shall mean (i) any entity that, directly or
indirectly, is controlled by the Company and (ii) any entity in which the
Company has a significant equity interest, in either case as determined by the
Committee
"Substitute Awards" shall have the meaning specified in
Section 4(c).
SECTION 3. Administration. (a) The Plan shall be administered
by the Committee. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the Committee
by the Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Options to be granted to a
Participant; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights, or
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other matters are to be calculated in connection with, Options; (iv) determine
the terms and conditions of any Option; (v) determine whether, to what extent,
and under what circumstances Options may be settled or exercised in cash,
Shares, other securities, or other property, or canceled, forfeited, or
suspended and the method or methods by which Options may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other property, and
other amounts payable with respect to an Option shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret, administer reconcile any inconsistency, correct any default
andlor supply any omission in the Plan and any instrument or agreement relating
to, or Option made under, the Plan; (viii) establish, amend, suspend, or waive
such rules and regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and (ix) make any other determination
and take any other action that the Committee deems necessary or desirable for
the administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with
respect to the Plan or any Option shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive, and binding
upon all Persons, including the Company, any Affiliate, any Participant, any
holder or beneficiary of any Option, and any shareholder.
(c) The mere fact that a Committee member shall fail to
qualify as a "Non-Employee Director" or "outside director" within the meaning of
Rule 16b-3 and Code section 162(m), respectively, shall not invalidate any
Option granted by the Committee which Option is otherwise validly made under the
Plan.
(d) No member of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Option
granted hereunder.
SECTION 4. Shares Available for Options.
(a) Shares Available. Subject to adjustment as provided in
Section 4(b), the aggregate number of Shares with respect to which Options may
be granted under the Plan shall be 325,000 and the maximum number of Shares with
respect to which Options may be granted to any Participant in any fiscal year
shall be 250,000. If, after the effective date of the Plan, any Shares covered
by an Option granted under the Plan, or to which such an Option relates, are
forfeited, or if an Option has expired, terminated or been canceled for any
reason whatsoever (other than by reason of exercise or vesting) and in either
such case a Participant has received no benefits of ownership with respect to
the forfeited Shares or the Shares to which such expired, terminated or canceled
Option relates (other than voting rights
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and dividends that were forfeited in connection with such forfeiture,
expiration, termination or cancellation), then the Shares covered by such Option
shall, to the maximum extent permitted under Section 162(m) of the Code during
any period when Section 162(m) is applicable to the Company, again be, or shall
become, Shares with respect to which Options may be granted hereunder.
(b) Adjustments. In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee in its
discretion to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number of Shares or other securities of the Company (or number
and kind of other securities or property) with respect to which Options may be
granted, (ii) the number of Shares or other securities of the Company (or number
and kind of other securities or property) subject to outstanding Options, and
(iii) the grant or exercise price with respect to any Option or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Option in consideration for the cancellation of such Option.
(c) Substitute Awards. Options may, in the discretion of the
Committee, be made under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by the Company or its Affiliates or a
company acquired by the Company or with which the Company combines ("Substitute
Awards"). The number of Shares underlying any Substitute Awards shall be counted
against the aggregate number of Shares available for Options under the Plan.
(d) Sources of Shares Deliverable Under Options. Any Shares
delivered pursuant to an Option may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
SECTION 5. Eligibility.
Any officer or other key employee of the Company or any of its
Subsidiaries (including any prospective officer or key employee), and any
consultant, advisor or other person whom the Committee determines possesses
skills that would be an asset to the Company or any of its Subsidiaries who is
not a member of the Committee, shall be eligible to be designated a Participant.
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SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Participants
to whom Options shall be granted, the number of Shares to be covered by each
Option, the exercise price therefor and the conditions and limitations
applicable to the exercise of the Option. The Committee shall have the authority
to grant Incentive Stock Options, or to grant Non-Qualified Stock Options, or to
grant both types of Options. In the case of Incentive Stock Options, the terms
and conditions of such grants shall be subject to and comply with such rules as
may be prescribed by Section 422 of the Code, as from time to time amended, and
any regulations implementing such statute. All Options when granted under the
Plan are intended to be Non-Qualified Stock Options, unless the applicable
Option Agreement expressly states that the Option is intended to be an Incentive
Stock Option. If an Option is intended to be an Incentive Stock Option, and if
for any reason such Option (or any portion thereof) shall not qualify as an
Incentive Stock Option, then, to the extent of such nonqualification, such
Option (or portion thereof) shall be regarded as a Non-Qualified Stock Option
appropriately granted unda the Plan; provided that such Option (or portion
thereof) otherwise complies with the Plan's requirements relating to
Non-Qualified Stock Options.
(b) Exercise Price. The Committee shall establish the exercise
price at the time each Option is granted, which exercise price shall be set
forth in the anolicable Option Agreement.
(c) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Option Agreement or thereafter. The
Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal or
state securities laws, as it may deem necessary or advisable;
(d) Payment. No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the aggregate exercise price
therefor is received by the Company. Such payment may be made in cash, or its
equivalent, or, if and to the extent permitted by the Committee, (i) by
exchanging Shares owned by the optionee (which are not the subject of any pledge
or other security interest and which have been owned by such optionee for at
least six months) or (ii) if permitted by and subject to such rules as may be
established by the Committee, through delivery of irrevocable instructions to a
broker to sell such Shares and deliva promptly to the Company an amount equal to
the aggregate exercise price, or by a combination of the foregoing, provided
that the combined value of all cash and cash equivalents and the Fair Market
Value of any such Shares so tendered to the Company as of the date of such
tender is at least equal to such aggregate exercise price.
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SECTION 7. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter,
suspend, discontinue, or terminate the Plan or any portion thereof at any time;
provided that no such amendment, alteration, suspension, discontinuation or
termination shall be made without shareholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for these
purposes any approval requirement which is a prerequisite for exemptive relief
from Section 16(b) of the Exchange Act or necessary to qualify the options
granted hereunder as performance based compensation for purposes of Code Section
162(m) (provided that the Company is subject to the requirements of Section 16
of the Exchange Act or Code Section 162(m), as the case may be, as of the date
of such action).
(b) Amendments to Options. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Option theretofore granted, prospectively or
retroactively; provided that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would impair the rights of any
Participant or any holder or beneficiary of any Option theretofore granted shall
not to that extent be effective without the consent of the affected Participant,
holder or beneficiary.
(c) Adjustment of Options Upon the Occurrence of Certain
Unusual or Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Options in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(b) hereof) affecting the Company,
any Affiliate, or the financial statements of the Company or any Affiliate, or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
SECTION 8. Change of Control.
In the event of a Change of Control after the date of the
adoption of this Plan, any outstanding Options then held by Participants which
are unexercisable or otherwise unvested shall automatically be deemed
exercisable or otherwise vested, as the case may be, as of immediately prior to
such Change of Control.
SECTION 9. General Provisions.
(a) Nontransferability. Each Option and each right under any
Option shall be exercisable only by the Participant during the Participant's
lifetime, or, if permissible under applicable law, by the Participant's legal
guardian or representative. No Option may be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a Participant otherwise
than by will or by the laws of
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descent and distribution and any such purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance shall be void and unenforceable
against the Company or any Affiliate; provided that the designation of a
beneficiary shall not constitute an assignment, alienation, pledge, attachment,
sale, transfer or encumbrance.
(b) No Rights to Options. No Participant or other Person shall
have any claim to be granted any Option, and there is no obligation for
uniformity of treatment of Participants, or holders or beneficiaries of Options.
The terms and conditions of Options and the Committee's determinations and
interpretations with respect thereto need not be the same with respect to each
Participant (whether or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other
securities of the Company or any Affiliate delivered under the Plan pursuant to
any Option or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares or other securities are
then listed, and any applicable Federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(d) Withholding. A Participant may be required to pay to the
Company or any Affiliate and the Company or any Affiliate shall have the right
and is hereby authorized to withhold from any Option, from any payment due or
transfer made under any Option or under the Plan or from any compensation or
other amount owing to a Participant the amount (in cash, Shares, other
securities, or other property) of any applicable withholding taxes in respect of
an Option, its exercise, or any payment or transfer under an Option or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes.
(e) Option Agreements. Each Option hereunder shall be
evidenced by an Option Agreement which shall be delivered to the Participant and
shall specify the terms and conditions of the Option and any rules applicable
thereto, including but not limited to the effect on such Option of the death,
disability or termination of employment or service of a Participant and the
effect, if any, of such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company or any Affiliate from adopting
or continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of options (subject to shareholder approval if such
approval is
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required), and such arrangements may be either generally applicable
or applicable only in specific cases.
(g) No Right to Employment. The grant of an Option shall not
be construed as giving a Participant the right to be retained in the employ of,
or in any consulting relationship to, the Company or any Affiliate. Further, the
Company or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Option
Agreement.
(h) No Rights as Stockholder. Subject to the provisions of the
applicable Option, no Participant or holder or beneficiary of any Option shall
have any rights as a stockholder with respect to any Shares to be distributed
under the Plan until he or she has become the holder of such Shares.
(i) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan and any Option
Agreement shall be determined in accordance with the laws of the State of
Delaware.
(j) "everability. If any provision of the Plan or any Option
is or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Option, or would disqualify the Plan or any
Option under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Option, such provision shall
be stricken as to such jurisdiction, Person or Option and the remainder of the
Plan and any such Option shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer
any Shares or other consideration under an Option if, acting in its sole
discretion, it determines that the issuance or transfer of such Shares or such
other consideration might violate any applicable law or regulation or entitle
the Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Option shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Option granted hereunder shall be construed as an offer to
sell securities of the Company, and no such offer shall be outstanding, unless
and until the Committee in its sole discretion has determined that any such
offer, if made, would be in compliance with all applicable requirements of the
U.S. federal and any other applicable securities laws.
(1) No Trust or Fund Created. Neither the Plan nor any Option
shall create or be construed to create a trust or separate fund of any kind or a
fiduciary
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relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Option, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(m) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Option, and the Committee shall
deternune whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractiQna1 Shares
or any rights thereto shall be canceled. terminated, or otherwise eliminated.
(n) Headings. Headings are given to the Sections and
subsections of the Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision thereof.
SECTION 16. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date
of its approval by the shareholders of the Company.
(b) Expiration Date. No Option shall be granted under the Plan
after December 31, 2006. Unless otherwise expressly provided in the Plan or in
an applicable Option Agreement, any Option granted hereunder may, and the
authority of the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Option or to waive any conditions or rights
under any such Option shall, continue after December 31, 2006.